You can learn a lot about companies just by seeing how they conduct themselves. Like guys at a bar, each has a personality, a vision, and a strategy seeking to make that vision more than just a wild fantasy. Let's take a look at three types of companies and how they would act down at the local watering hole.
Bar profile: People think the Pseudo-Fad's just there for a quick drink, looking for nothing more than a fun night out. But really, he's looking for love -- in all the wrong places. A few people eye him up and down and determine he's not the type who commits to long-term relationships. Your loss, ladies. You only passed up on years of unconditional happiness and devotion.
Real-life company: Skullcandy (Nasdaq: SKUL ) , the best stock sitting at the bar right now. Investors think Skullcandy's a fad. In fact, some think it's even worse -- it's currently the most-shorted stock on the NASDAQ. That's OK. "Success is the best revenge," Skullcandy reminds itself, looking sadly at its own reflection in the depths of its Whiskey Sour.
In reality, this Pseudo-Fad has nearly doubled sales each year for the past five years. Its ROE is better than 40%. On Aug 2, it reported earnings and revenues above Wall Street Expectations. It's expanding globally, recently acquired its European distributor, and has an all-star cast of celebrity endorsements.
Bar profile: Maybe-Fad is much more popular. But every now and then, a girl will express her doubts: "Did you come here to get a drink, to meet someone for the night, or did you come to meet someone you could spend the rest of your life with?"
"Uh ... someone I can spend the rest of my life with," says the Maybe-Fad, unconvincingly. But the truth is, he doesn't have the slightest clue what he's looking for.
Real-life company: Crocs (Nasdaq: CROX ) , the international footwear retailer, has been relatively popular for a number of years. But it remains to be seen whether the company can diversify its offerings and image to something other than those hole-ridden, strange-looking, and cheaply made sandal-things.
Crocs runs the risk of being too dependent on an already-slowing Asian economy. No one knows whether Crocs is here for the drink specials, a one-night-stand, or a committed relationship -- not even Crocs.
The company has been on a popularity roller coaster for the past five years. Although last year was its most successful financially since 2007, it's still down about 50% from its 52-week-high. But now it could be a value play -- it trades at a reasonable 12 times earnings.
Maybe it's taken a beating because it's diversified into Asia, and the Eastern markets have shown signs of slowing. Of total sales, 44% were from Asia, up 20% from where they were a year before. What more do they want? Can't Crocs do anything right?
Shameless Fad Enterprises
Bar profile: Oh, man. This guy doesn't hold anything back. He just walked into the bar and he's already hitting on the cute brunette in the corner ... Oh! Would you look at that! He got slapped! But Shameless Fad doesn't care. He's young, he's wild, and he doesn't know where he'll be in an hour. Hell, I doubt if he knows where he is now.
Real-life company: Zynga (Nasdaq: ZNGA ) . Zynga bought the online gaming website OMGPOP (owner of popular game "Draw Something") in March for $180 million. Within a month, there were 30% fewer users of the Draw Something game. For a gaming company, Zynga sure got played.
The company's invaluable wingman is Facebook, where Zynga has gotten the majority of its exposure. Recently, Zynga's tried to drive more organic traffic to its own sites so it doesn't get gouged on traffic acquisition costs. Meanwhile, Facebook is still Zynga's lifeblood; they both know Zynga isn't popular enough be successful on its own.
Any second, someone else could waltz in the bar and buddy up with Facebook, buying it a few more drinks than Zynga would. Worse still, another Zynga could walk in -- just a little nicer-looking and charismatic -- who doesn't need a Facebook. A solid half-year of public trading under its belt, and shares in Zynga are worth less than a third what they were at the time of their IPO. Maybe those $180 million worth of drinks that didn't pan out well had something to do with it.
If you can distinguish between whether a company's products and services have long-term staying power or are simply the newest, shiniest version of a Pet Rock, you can make a fortune if you're right. I believe strongly in Skullcandy's staying power for the long term, which is why I've picked it to outperform on my CAPS page.
Here at the Motley Fool, we value different points of view, and not everyone thinks Zynga is a dog. Read through the Motley Fool's premium report on Zynga today to get a feel for the variety of opinions and in-depth analysis about it as an investment.